6 Ways To Design A Business

I asked my students during a class on Business Design at Stanford’s d.school how they might innovate on IKEA’s business. The engineers and scientists’hands rose immediately.

“Offer interior design services!”“Launch a more premium brand!”“Take back old furniture as a way to discount the price of new purchases!”

Great ideas, no? I then asked them to talk through generating a businessmodel to support one of those proposals. This time, no hands went up. They turned their eyes down and examined the floor.

At IDEO there are people who design in pixels or steel, and then there arepeople like me,who model the systems, cash flows, and structures to sustainsuch bold innovation.

Designing a business will never be as sexy as creating a shiny new object.Yet the business system is the foundation upon which those brilliant objects live in the marketplace. And ultimately, the reason they can thrive and change the way we interact with the world.

For those of you who are interested in this variety of design , I’ve put together a cheat sheet for how to (re)design a business model.

1. Break down the problem

Let’s imagine that IKEA was creating a premium line of furniture conceived by guest designers. What questions might you want to ask about thatoffering? Well, for starters: who would it serve? How big is the audience these products might appeal to? What kind of premium could IKEA charge for a designer sofa over a Klippan sofa? What extra costs will be incurred for more luxurious fabrics?

At its essence, a business model needs to define who it is serving(customers), how the offering gets to that person (channel), what uniquevalue is delivered (value proposition), and how much that value is worth(pricing).

I always begin by defining what unique value we can deliver to the market. As a human-centered design firm, IDEO sees the opportunity for innovation in who we are designing for. We focus on what users need — the unique value proposition our designs can offer — and then design the business model around that.

2. Create Constraints

OK. Now that you have identified the elements that make up a businessmodel, or business system, it’s time to frame your problem. How? Firstimpose some boundaries that define the problem area. “Constraints areliberating,” says Diego Rodriguez, a partner at IDEO and a mentor of mine. They help you move from blue sky to brass tacks thinking.

In the case of Bean Pole, a Korean clothing retailer, we started by definingwhat the brand stood for — delivering high quality, on trend clothing with aBritish feel. We used that as a foundation to generate ideas for serviceexperiences that would deliver on the implicit and explicit brand values.Without looking at other parts of the business model, we crystalized what was immutable — in this case, the brand attributes — to then inform what was possible in the other parts of the business. Capturing such elements that cannot change are exactly the constraints you’re looking for.

3. Look for Inspiration

The biggest mistake business design students make is to just copy businessmodels of existing companies, especially those that their innovations seek to supplant. There’s nothing wrong with building a better mouse-trap, but that product will stand out from the pack if it’s supported by a novel business system.

Take Zipcar, which was, in essence, a car rental service. But the company’sinnovative pricing and membership revenue model were wholly different and ultimately disrupted the auto rental industry. Rather than using an existing business model as a template, use it as a starting point. Then, look out to the world for fresh ways that other companies have designed the elements you seek to innovate.

Likewise, Warby Parker could have introduced eyeglasses the way otherdesigners have — in retail stores with a high markup. Instead, the companytook the best practices of e-commerce — offering customers great prices, free shipping, and returns — to drive purchase and change the paradigm for how eyewear is sold.

4. Bring in Outsiders

My students’ project is around innovating the public school lunchprogram in San Francisco. One group’s proposal is for the school to chargestudents for take-home meals, to be eaten at home with family for dinner.That begged the question, how much might people pay for this meal? If it’sseen as equivalent to dinner in a restaurant, they might pay a lot, but what if dinner out is drive-thru fast food? With a few quick phone calls to the families of the public school kids, my students were able to understand how much they could charge for a meal, and therefore if their big idea could work.

Bringing in outsiders to respond to your ideas is always a good idea. Itrefocuses the work on true human needs, challenges the designer’sassumptions about audience and capturing value, and allows teams to testand iterate.

5. Begin With Ballpark Numbers

At IDEO, I led a team that was designing a mobile product for a Korean client. We heard from users that they wanted steep discounts, asking for 40 percent and 50 percent of the retail price through the smartphone app. We also knew from our client’s financial statements that there was no way they could sustain a business if they did so.

Rather than burying ourselves in a financial model to try to make the numbers work, we mocked up a few simple interactive prototypes to test with target consumers. Once the product was in hand, we discovered that people were surprisingly quite happy with 10–15 percent discounts. The moral: there’s a great gulf between what people say they want and how they actually behave. Knowing this early in our design process saved a lot of time and allowed us to co-design the user experience and discount thresholds over time.

6. Remember to Design A System

A business system is a series of “if, then” statements — interdependencies.One design choice influences the next. For example, when Warby Parkerdecided to sell exclusively through an online channel, it shaped theirmarketing strategy, requiring them to invest in campaigns that madeconsumers aware of their offering.

At each stage of design, think through how your choices generate newassumptions about the interconnected aspects of your business model. Stepback and consider how interconnected pieces work together in a system. Asdesigners, we aim to create elegant systems — a whole that fluidly connectsthe parts.

As I stand in front of my class at Stanford, I’m certain I’m looking at the future Elon Musks and Marissa Mayers. They are going to innovate in radically new ways. But their brainchildren will only make it to market if they are supported by equally incredible business systems. These product designers will build, breakdown and recreate each product scores of times until they have a form that looks natural and obvious. The business designer too will build, test, tweak and refine until she has an elegant and fluid system in place.

With this co-creation of product and business we are left with something so well integrated into our lives that we can’t imagine how we ever managed without it. Surely, these students will offer us our next great product – and business –soon.